RBI on Friday key cut interest rate by steepest -- 75 basis points to 4.4 per cent -- in more than 15 years as it joined the Modi government efforts to tackle coronavirus impact

In a much-needed relief to the common man and businesses, the Reserve Bank of India Governor Shaktikanta Das on Friday announced that all banks, lending institutions have been given authority to allow a three-month moratorium on all loans in wake of coronavirus outbreak and the nationwide lockdown.

This means, banks can allow all customers to not pay their monthly installments for a 3-month period, falling due from March 1, 2020 to May 31, 2020. This will include principle and/or interest payment, bullet repayments, equated monthly installments (EMIs), and credit card dues.

However, interest will continue to accrue on outstanding part of loan during moratorium.

The RBI, in its 7th bi-monthly statement on Friday, said all commercial banks, co-operative banks, all-India financial institutions, and NBFCs are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020.

The RBI said the moratorium on term loans and the deferring of interest payments on working capital could not result in asset classification downgrade. There will also be no adverse impact on the credit history either, the central bank said. "The moratorium on term loans, the deferring of interest payments on working capital and the easing of working capital financing will not qualify as a default," the RBI said.

So what kinds of loans are exempted?

As per the RBI policy statement, all terms loans including personal loans, home loans, education loans, auto or other loans with a fixed tenure will be covered under the three-month moratorium. All your smaller loans such as monthly installments on mobile phones, fridge, and TV, etc have also been exempted.

The RBI on Friday key cut interest rate by steepest -- 75 basis points to 4.4 per cent -- in more than 15 years as it joined the Modi government efforts to tackle coronavirus impact. The central bank also reduced the cash reserve ratio maintained by the banks for the first time in over seven years. The CRR for all banks was cut by 100 basis points to release Rs 1.37 lakh crore across the banking system. The reverse repo rate was cut by 90 bps to 4 per cent, creating an asymmetrical corridor.

The measures announced come a day after the government unveiled a Rs 1.7 lakh crore package of free foodgrains and cash doles to the poor to deal with the economic impact of the unprecedented 21-day nationwide lockdown.

Update: An earlier version of this story said the exemption did not apply to credit card dues. However, new information has emerged after RBI issued guidelines, which suggests otherwise. The change has been incorporated in the story.